UK to introduce new stablecoin and cryptocurrency laws in July

Source: TaxDAO

Bim Afolami, the UK’s economic secretary, plans to introduce new laws to regulate stablecoins and cryptocurrencies, seeking to address this rapidly growing industry through licensing requirements, tax implications, trading platform reviews, and strong security measures.  

On April 15, 2024, at the Innovative Finance Global Summit, the UK’s economic secretary, Bim Afolami, announced plans to introduce new laws to regulate the issuance and use of stablecoins and cryptocurrencies in the country. This comprehensive regulatory framework is expected to be published in July 2024 and will make the UK a regulatory leader in the booming cryptocurrency industry.  

The UK’s cryptocurrency industry is one of the fastest growing crypto markets in the world, outpacing Germany and the United States after strong growth over the past decade. The popularity of cryptocurrencies in the country and their viability as legal assets has led to the country having more than 3 million cryptocurrency users. It is estimated that these users have a total cryptocurrency wealth of more than $3.72 billion. Furthermore, the total revenue of the UK cryptocurrency industry in 2023 is estimated to be $1.9 billion and is expected to reach $2.53 billion in 2024.  

With the increasing adoption of cryptocurrencies by mainstream businesses in the UK, this exponential growth and market penetration has fueled the need for regulation of the industry.  

1. What to expect from the new crypto law 

Cryptocurrencies have impacted a wide range of industries today, from being the latest currency to facilitate online banking transactions to supporting the operation of online gambling. It is not difficult to understand that the UK hopes to create a vibrant and safe crypto environment in the country by establishing clear rules for the operation of the crypto world.  

At the Innovate Finance Global Summit, Bim Afolami said that the final proposal for the regime is being actively developed to ensure that the regulations can be introduced as soon as possible. He added that many crypto asset activities will be included in the regulatory scope for the first time. Some of the regulations that can be expected include: 

● Stablecoins, as cryptocurrencies whose value is pegged to traditional assets or other cryptocurrencies, will face licensing requirements for their issuers to alleviate market concerns about the potential financial instability of stablecoins; 

● Clarify the tax implications of staking, which means that cryptocurrency owners pledge their assets to facilitate transaction verification on the blockchain network and guarantee consumer rights; 

● Tighter scrutiny of the sale and purchase of digital assets on cryptocurrency trading platforms to prevent criminal activities in the crypto environment. These platforms may be subject to Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols like traditional financial systems; 

● Custodian service providers who store crypto assets for users for a fee will need to take resilient security measures to protect users' assets from cyber attacks and other threats. 

The UK's economic secretary confirmed that the UK's goal is to attract businesses and investors to this fast-growing industry while ensuring that the country's consumers are protected from financial risks and fraudulent activities.  

2. The legislative journey of the UK cryptocurrency ecosystem 

According to the UK Financial Conduct Authority, only 42% of UK adults had heard of cryptocurrency in 2019. But by 2022, 91% of UK adults were aware of cryptocurrency. In addition, the UK government expressed its intention to regulate the cryptocurrency industry in 2022.  

● Early 2022 - UK Prime Minister Rishi Sunak announced that the government plans to promote the UK's financial system to support cryptocurrency institutions and transform the UK into a leading global financial center. He said that the focus will be on supporting the operation, investment, innovation and scalability of cryptocurrencies and companies.  

● February 2023 - In response to the UK government's agenda to make the UK a global financial center, the UK Financial Conduct Authority (FCA) cooperated with the Bank of England (BoE) to start consultations on the development of a stablecoin regulatory framework. These consultations are conducted in accordance with the directive that the FCA will be responsible for regulating the country's crypto environment. Meanwhile, the Bank of England will be responsible for overseeing the operations of stablecoin providers that could affect the UK financial system due to their market size and influence.  

● July 2023 - The UK Law Commission adopts four recommendations to drive an overhaul of domestic crypto regulations, which could potentially see the country consider cryptocurrencies and stablecoins as regulated financial activities.  

Twelve months after this historic move, the UK is expected to publish its final regulatory framework for crypto companies and cryptocurrencies. However, this may not be guaranteed due to the upcoming general election, which is likely to be held in the second half of 2024.  

The Labour Party, which is currently expected to win the election, has expressed a negative attitude towards cryptocurrency regulations. If the Labour Party takes power from the ruling Conservative Party, it may lead to the aforementioned regulations being delayed or amended before approval. If this happens, the UK cryptocurrency industry may suffer the same fate as the US cryptocurrency market, where cryptocurrency users are fleeing to other jurisdictions due to regulatory uncertainty in the country.